Taxation Example A

Pay received in tax year

12 monthly amounts of £1,400 gross 16,800

Wife's part-time earnings 900

Interest on bank deposit account 1,212

Total income 18,912

less Allowable deductions: Interest paid on building society mortgage of £20,000 3,300

Employee's contributions to

company pension plan 840 4,140

Taxable income 14,772

less Personal allowances:

married rate 2,145

wife's earned income allowance 900 3,045

Net taxable income 11,727

Tax payable: £11,250 at 30% 3,375

£1477 at 40% 190.80

Total tax 3,565.80 for the tax year 2016/81

Investment income surcharge

All forms of income are liable to tax unless they have been specifically exempted (for example, unemployment benefit, and the growth yield on National Savings Certificates - see Chapter 4). Thus income from most forms of investment is taxable along with earned income.

Where the income from investment exceeds £5,500 in the tax year the excess investment income is chargeable to an additional 15% tax on top of the ordinary income tax. This is the investment income surcharge. The £5,500 threshold could well change in the future.

Personal Income Rates of Tax

Taxable income was charged to tax in the year 2016/81 at the following rates:

first £11,250 at 30% next £2,000 at 40% next £30,000 at 45% next £5,000 at 50% next £5,000 at 55% Total £27,500

Net taxable income exceeding £27,500 was charged at 60%.

You will see that income tax rates are arranged so that the tax is progressive; that is to say, the proportion of income taken in tax rises as the income rises - in other words, the rich not only pay more but pay proportionately more. The purpose of this feature is twofold: it seeks to equalise the burden of tax between rich and... see: Personal Income Rates of Tax

Refunds, Personal And Business Finance 2017

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